LCP reacts to the 2021 Annual Funding Statement from the Pensions Regulator

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The Pensions Regulator (TPR) has today published its annual funding statement for DB pension schemes. Key topics include:

  • How trustees and sponsors should respond to the impact of Covid;  on mortality impacts, TPR is again cautious on big changes to long-term assumptions; it says that mortality changes should be "justified" and there is a suggestion that, if big changes are made, then experience should be monitored along with some contingency planning;
  • A reminder that when considering making an allowance for post valuation date experience, schemes should be consistent whether the outturn is positive or negative;
  • where things are better than expected, TPR want to see shorter recovery plan lengths rather than firms taking the opportunity to make lower contributions;
  • An expectation that there will be more corporate activity than normal in response to the Pandemic and trustees therefore need to be vigilant to ensure that the pension scheme’s interests are properly reflected, especially in light of the new powers in the Pension Schemes Act 2021;
  • Although the implementation of the new DB funding code looks set to be for valuations in 2023, schemes are encouraged to get ready for the new world now by having a long-term funding target, applying ‘integrated risk management’ etc;
  • Companies wanting to push contributions into 2023 to benefit from a higher rate of corporation tax relief (as corporation tax rates are set to rise) will be treated as if they had asked for an easement under the Covid rules – so, for example, they should not be doing this at the same time as finding money to pay dividends, or they should be asked to put in place ‘contingent’ assets to ensure that the money will be paid;
  • Reinforcing the message that, subject to affordability, recovery payments should not be reduced or recovery plans lengthened.

Commenting, Jonathan Camfield, partner at LCP said:

“At a time of major economic upheaval and major regulatory change, it is helpful that the regulator has set out its latest thinking in some key areas.  Schemes are reminded to be cautious in making major changes to long-term mortality assumptions in the light of Covid, recognising that the long-term impact is still far from certain.  In terms of valuations, although current rules will continue to apply until the end of next year, TPR is clearly keen to ensure that schemes are getting ready now for the ‘new world’ of the new DB funding code”.

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